Thursday, October 04, 2012

Can you retire with RM1mil?

A MILLION ringgit is a lot of money. In the past, it was
always considered “the benchmark” in terms of a person's success. After
all, having RM1mil officially makes you a millionaire.

However, realistically, is RM1mil big enough to survive on today, especially once you retire?
According
to official statistics, the average Malaysian male has a life
expectancy of up to 75 years, while for females its up to 77 years. This
means that a retiree aged 55 has to support hinself or herself for
another 20 years or more.

But let's be a little bit conservative
for the purpose of this article, let's put the average life expectancy
at 80 years old. With RM1mil at 55 years old, you would need to divide
that money to last you another 25 years, which comes to an average of
RM3,333 a month.

Dwindling
value: With the high cost of living and rising inflation on an annual
basis, RM1mil won’t be sufficient to retire for long.

Is that enough to sustain you?
“It really depends on your living standards,” says Whitman Independent Advisors Sdn Bhdmanaging director Yap Ming Hui. “With
rising inflation on an annual basis, that monthly sum (of RM3,333) will
be worth a lot less as the months and years go by, so it's definitely
not enough to sustain you for 25 years,” he tells StarBizWeek.

Yap nevertheless believes that a person is able to “make do” with RM1mil once he or she retires.
“You
would definitely need to readjust your lifestyle,” he says, adding that
a person without financial obligations, such as a pending house or car
loan can still survive on RM3,333 a month.
“Of course, if you
have a posh lifestyle, especially when you're living in Kuala Lumpur,
then that amount won't be enough. But if you live outside Kuala Lumpur
and live within your means, then it's still possible.”

MyFP Services Sdn Bhdmanaging director Robert Foo says living for 25 years with RM1mil in today's environment “would be tough.”

“If
you're married and have a few children and ongoing commitments such as a
loan, it's tough. If you're not generating any more money after 55, it
will definitely run out.

“By the time most people are 55, their
children are probably working but some of them might still depend on
their parents. They could be living under the same roof or might need
financial help to buy their first car, for instance.”

CTLA Financial Planners Sdn Bhdmanaging director Mike Lee also feels that RM1mil would only sustain a person for a limited period of time.

“RM1mil
might be enough for the first few years. However, with the high cost of
living and rising inflation on an annual basis, that sum won't be
sufficient.”

Foo maintains that it is ultimately up to how the individual manages his or her lifestyle.
“It truly depends. For some people, RM1mil might not be enough to even last them 10 years.”
He says RM1mil might not be sufficient for a bachelor with no commitments to retire on.
“As
a bachelor, you're probably going to want to go out with your friends
and see the world. You're unlikely to be cooking your own food, staying
at home everyday and living hand-to-mouth every month.

“That's not considered living, that's existing!”

How to retire with RM1mil
While
RM1mil might not be enough to retire with, it's still a lot of money,
which can be used for investment purposes and to grow your wealth even
further.

Foo believes the best thing to do is to continue working well into your retirement years if health permits,.

“Don't
retire! We advise our clients that if it's possible, they should
continue working. At 55, you're still young enough to generate more
income for yourself. Even if it's just half of the amount that you used
to earn, it's still money coming in,” he says.

Yap says
readjusting your living standards would also help, adding that an
individual could further invest his or her money in shares, unit trust
or even property.

In terms of shares, Lee says a retiree should put some of his money in stocks that provide good dividend returns.

“Real
estate investment trusts also give good dividends. Have a mixture of
investments and don't just leave everything in your fixed deposit
account.

“Leaving all your money in the bank is not a good idea,
as it won't generate good interest rates. With the inflation rate
growing at an even faster rate, you'll just end up losing out.”
Foo says it's also a good idea to start your own business.

“By
the time you retire, you would have acquired valuable skills that still
make you marketable,” he says, adding however that starting your own
business can be either a rewarding or risky endeavour.
“Starting your own business can generate high returns. But you can either make it or lose everything.”